BATS Says 'System Issue' Has Caused Pricing Problems Since '08

BATS Global Markets issued a note to clients late Wednesday warning that a "system issue" allowed hundreds of thousands of transactions to be processed at prices that were different from the best ones available in a situation that has been ongoing since 2008.

The exchange operator said that under certain conditions short sales would be executed at a price equal to or less than the best available price. U.S. securities rules stipulate that trades must be executed at the best available price. A short sale is a bet that a stock will go down that is made by temporarily borrowing a stock with the intent of later returning it a lower price.

The issues occurred on both of BATS' securities exchanges, called BZX and BYX, and its options platform. The problems for BZX and BYX began occurring when each exchange commenced operations as so-called national securities exchanges, in 2008 and 2010 respectively. The issues started occurring on the options platform in 2010, also on the day it commenced operations.

Between the two securities exchanges, there were more than 440,000 incidents reported. On average, the BZX exchange, which processes considerably more volume than BYX, logged 410.1 incidents a day since 2008. The options exchange logged 617 incidents in total.

A BATS spokesperson said the net impact to its customers was less than $500,000 total over the four-year span, although the company declined to comment further. BATS said in the notice to traders that it expects the issues to be resolved by the middle of January.

BATS' exchanges account for between 12% to 13% of U.S. equity trading daily. This fresh round of issues comes after the company ran into a slew of problems that forced it to pull its initial public offering from its own exchange in March of last year. It competes with other operators like NYSE Euronext (NYX) and Nasdaq OMX Group (NDAQ).